8-K: Philip Morris International Raises 2024 EPS Guidance After Strong Q3 Performance

Philip Morris International reported strong third-quarter results, leading to an increased full-year earnings outlook.

Summary

• Philip Morris International (PMI) announced its third-quarter and first nine-months results for 2024, showcasing strong performance.
• The company's third-quarter reported diluted EPS grew by 49.2% to $1.97, while adjusted diluted EPS increased by 14.4% to $1.91, and 18.0% excluding currency impacts.
• Net revenues for the quarter reached a record high, driven by growth across all regions and categories.
• The smoke-free business accounted for 38% of total net revenues and 40% of gross profit, with net revenues increasing by 14.2% (16.8% organically) and gross profit increasing by 15.9% (20.2% organically).
• Shipments of smoke-free products reached nearly 40 billion units in 92 markets.
• IQOS continues to strengthen its position as the second-largest nicotine brand in markets where it is present, gaining 1.0pp of combined cigarette and HTU industry volumes.
• HTU adjusted in-market sales (IMS) volume was up by an estimated 14.8%.
• In Japan, IQOS adjusted IMS grew by 14.3%, marking the 8th consecutive quarter of double-digit growth.
• ZYN nicotine pouch shipments in the U.S. reached 149.1 million cans, a 41.4% increase year-over-year.
• The company has raised its full-year growth outlook for adjusted diluted EPS to a range of 14% to 15%, excluding currency.
• Full-year reported diluted EPS is forecast to be in a range of $6.20 to $6.26, and adjusted diluted EPS is forecast to be in a range of $6.45 to $6.51.
• PMI expects total cigarette, HTU and oral smoke-free product shipment volume growth of 2% to 3% for the full year, driven by smoke-free products.

Sentiment

Score: 8

Explanation: The document conveys a strong positive sentiment due to the significant growth in key metrics, increased guidance, and positive management commentary. The company's focus on smoke-free products and its success in this area are also viewed favorably. However, there are some negative aspects such as the loss in the wellness and healthcare segment and the impairment charge, which prevent a perfect score.

Positives

• PMI delivered exceptionally strong performance in the third quarter, with record quarterly net revenues and earnings per share.
• The smoke-free business continues to show superior performance, with significant growth in both revenue and gross profit.
• IQOS is strengthening its position in the heat-not-burn category, with strong growth in key markets like Japan and Europe.
• ZYN nicotine pouches are experiencing strong growth, particularly in the U.S., as supply constraints ease.
• The company is raising its full-year growth outlook for adjusted diluted EPS, indicating confidence in future performance.
• PMI increased its regular quarterly dividend by 3.8%, demonstrating a commitment to shareholder returns.

Negatives

• The Wellness and Healthcare segment reported an adjusted operating loss of $40 million for the third quarter.
• The Americas region saw a decrease in total cigarette and HTU shipment volume by 1.1%.
• There was an impairment charge of $198 million related to the sale of Vectura Group.
• The company is facing higher manufacturing costs, notably related to tobacco leaf.

Risks

• The company's future results are subject to risks, uncertainties, and inaccurate assumptions.
• Business risks include excise tax increases, regulatory restrictions, health concerns, litigation, intense competition, and global economic and political developments.
• PMI's profitability may be adversely affected if it is unsuccessful in introducing and growing smoke-free products or if regulations do not differentiate between such products and cigarettes.
• The company is subject to risks related to currency exchange rates, adverse changes in tax laws, and the cost and availability of raw materials.
• The sale of Vectura Group is subject to regulatory approval and other customary closing conditions, which may impact the timing of the transaction.
• The company is facing potential impairments of equity holdings, including its Canadian affiliate, Rothmans, Benson & Hedges Inc.

Future Outlook

PMI has raised its full-year growth outlook for adjusted diluted EPS to a range of 14% to 15%, excluding currency. The company expects total cigarette, HTU and oral smoke-free product shipment volume growth of 2% to 3% for the full year, driven by smoke-free products. They also anticipate HTU adjusted IMS to deliver around 13% growth for the full year, and HTU shipment volumes of around 140 billion units.

Management Comments

• In the third quarter, we delivered exceptionally strong performance, with record quarterly net revenues and earnings per share, said Jacek Olczak, Chief Executive Officer.
• This reflects excellent momentum across all regions and categories, with a reacceleration in IQOS adjusted in-market sales growth, strong ZYN volumes, and resilient combustible performance.
• As a result of our strong year-to-date delivery, we are raising our full-year growth outlook for adjusted diluted EPS to a range of 14% to 15%, excluding currency.

Industry Context

The results indicate a continued shift in the tobacco industry towards smoke-free alternatives, with PMI's smoke-free business driving growth. The strong performance of IQOS and ZYN highlights the increasing consumer adoption of these products. The company's focus on innovation and expansion in the smoke-free category aligns with broader industry trends.

Comparison to Industry Standards

• PMI's 14.8% growth in HTU adjusted in-market sales is a strong result compared to the overall industry growth of 1.3% for cigarettes and HTUs.
• The 41.4% growth in ZYN nicotine pouch shipments in the U.S. indicates a significant market share gain in the oral nicotine category, outpacing many competitors.
• The 14.3% growth in IQOS adjusted IMS in Japan is a notable achievement, demonstrating the brand's continued dominance in the heat-not-burn market, compared to competitors such as Japan Tobacco.
• PMI's smoke-free business now accounts for 38% of total net revenues, which is a significant shift compared to traditional tobacco companies that are still heavily reliant on combustible products.
• The company's focus on expanding its smoke-free portfolio and its investment in R&D are in line with the strategies of other major players in the industry, such as British American Tobacco and Imperial Brands, who are also investing in next-generation products.

Legal Proceedings

• PMI was informed by its deconsolidated Canadian affiliate, Rothmans, Benson & Hedges Inc. (RBH), that the court-appointed mediator and monitor in RBHs Companies Creditors Arrangement Act (CCAA) proceeding filed a proposed plan of compromise and arrangement outlining certain terms of a comprehensive resolution of tobacco product-related claims and litigation in Canada against RBH and its affiliates.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and the raised earnings guidance.
• Employees may see increased job security and potential for growth due to the company's strong performance.
• Customers will have access to a wider range of smoke-free products, including new launches in Q4.
• Suppliers may see increased demand for raw materials and components due to the company's growth.
• Creditors may view the company more favorably due to its improved financial performance.

Next Steps

• The company plans further launches of DELIA and LEVIA in Q4.
• PMI will continue to invest in ZYN capacity in the U.S.
• The sale of Vectura Group is expected to close by the end of 2024, subject to regulatory approval.
• The remaining units of Vectura Fertin Pharma will be given a new corporate identity and will focus on developing and commercializing oral consumer health and wellness offerings and inhaled prescription products.
• PMI will continue to monitor the CCAA proceeding in Canada.

Key Dates

Keywords

Philip Morris International, PMI, smoke-free products, IQOS, ZYN, nicotine pouches, HTU, earnings per share, EPS, net revenue, gross profit, heat-not-burn, vaping, oral SFP, combustibles